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Press Offices > Associations

Association for Savings and Investment South Africa
Press Office Feature : Sluggish economy one of the beneficiaries of life industry’s R412.2 billion payout in 2015

Company: Association for Savings and Investment South Africa
Author:Lucienne Fild
Email:[email protected]
Posted:15 Mar 2016

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Many policyholders resorted to surrendering their savings policies to access much needed cash

South African life insurers injected R412.2 billion into the economy last year through benefit payments to policyholders and beneficiaries. This is 4% more than in 2014, when total benefit payments amounted to R395.5 billion.

Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), says for many consumers these benefit payments would have come at a time of planned or unplanned financial need due to the loss of a breadwinner, disability or retirement.
 
He added that given the tough economic environment that prevailed in 2015 it did not come as a surprise that many policyholders also resorted to surrendering their savings policies to access much needed cash.
 
“Whatever the reason for the benefit payments made to consumers, the reality is that there was a risk or savings policy that provided a financial back-up to these South Africans when they most needed it. As an added benefit, the R412.2 billion paid out in 2015 also provided our sluggish economy with much needed liquidity.”
 
According to Dempsey, the 2015 long-term insurance industry statistics released by ASISA this week are indicative of a robust industry in good financial health and well positioned to honour policy claims.
 
“The financial stability of the country’s long-term insurance industry is of critical importance, considering that the provision of risk cover to consumers is its core business. The life industry is also recognised as the custodian of a significant portion of the country’s long-term savings pool.”
 
The life insurance industry held assets of R2.58 trillion at the end of 2015, a solid increase of 6% from the R2.43 trillion held at the end of 2014.
 
This means that in 2015 long-term insurance industry assets exceeded liabilities by more than four times the legal reserve buffer required.
 
Decline in risk policies
 
Dempsey notes with concern that against a staggering risk insurance short fall of R24 trillion, the number of risk policies bought in 2015 continued to decline. The insurance gap, which is the difference between existing life and disability cover and the actual insurance need of South African earners, is measured by ASISA every three years.

In 2015 consumers took out 4.8 million new individual risk policies to cover events such as death, disability and dread disease. In 2014 consumers took out 5 million risk policies. This represents a 4% decrease in the number of policies bought in 2015 when compared to 2014.
 
Dempsey points out that of the total benefits paid in 2015, more than R45.7 billion was paid to individuals who had experienced either death or disability in their family circle.
 
“Life and disability cover provide financial protection to families that could face financial ruin without it. Yet consumers continue to neglect an important aspect of their risk protection planning by not making provision for the financial impact of life changing events such as death and disability.”
 
Dempsey adds, however, that those who are buying risk cover appear to be making provision for higher benefit payouts. This is evident from the 10% increase in new risk cover premiums in 2015 when compared to 2014.
 
New premium inflows
 
In 2015 the life industry attracted total new premium income (recurring and single premiums) of R138.9 billion, a healthy increase of 13% over the R122.6 billion collected in 2014.
 
Dempsey comments that single premium business grew by 14% last year, while recurring premiums increased by an inflation beating 8%.
 
While single premium investments continue to make up the bulk of new premium income, Dempsey says it is very likely that the introduction of tax free savings and investment accounts had bolstered recurring premium savings business.
 
He points out that recurring premium savings business showed a phenomenal jump of 22% to R4.8 billion in 2015 from R3.9 billion in 2014. 
 
Surrenders and lapses
 
Dempsey says of concern to the industry is the increase of 18% in the surrender value of individual savings policies from R58.2 billion in 2014 to R68.9 billion in 2015. A policy is surrendered when the policyholder stops paying premiums and withdraws the fund value before maturity.
 
Dempsey says while the increase in surrender values can be partly attributed to higher investment returns, it is probable that a higher number of policyholder surrendered their policies out of financial desperation. 
 
“Surrendering a savings policy is rarely in the long-term interest of the policyholder, because it is almost impossible to make up at a later stage the compound growth lost.”
 
The statistics for surrendered policies must be viewed in the context of the total value of in force policies - a large portion of the life industry’s R2.6 trillion assets - and not just the new investment business written in 2014.
 
Dempsey says by comparison, policies lapsed in 2015 increased by only 2% within the first year of being written. A lapse occurs when the policyholder stops paying premiums, usually for a risk policy.
 
Dempsey says while new recurring premiums for the 12 months ended 31 December 2015 amounted to R19.9 billion, first year premiums worth R4.3 million were lapsed.
 
“While the lapsing of a risk policy does not result in the destruction of a policy value, it does remove the financial risk protection buffer leaving the policyholder and beneficiaries financially vulnerable in case of a life changing event like death or disability."

"The immediate benefit of saving the premium comes at the cost of an asset in the future, namely the policy payout.”

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